Net Zero is bad for business
The Financial Post reports that major banks in the United States and Europe are threatening to withdraw from a green banking and investment group committed to pursuing net zero goals due to fears of lawsuits and the impact of increasingly stringent carbon dioxide emission reduction benchmarks on the firms' profitability. This is a wise decision.
Ending the use of fossil fuels in a vain attempt to prevent climate change is bad for the economy in general and banking and diversified investment funds in particular. These banks never should have led or participated in such an effort.
According to the Financial Post, major U.S financial institutions are having misgivings about the ever more stringent climate goals pushed by the Glasgow Financial Alliance for Net Zero (GFANZ). Founded and led by Mark Carney, the former governor of the Bank of Canada and the Bank of England, GFANZ's membership consists of 450 financial firms accounting for $130 trillion of assets. It works with the United Nations to meet net zero carbon dioxide emission goals. The Financial Post writes:
Yet, now, as GFANZ and the U.N. are ratcheting up the anti-fossil fuel rhetoric and pushing stricter emission reduction goals on shorter timelines, U.S. banks including like JPMorgan Chase & Co., Morgan Stanley, and Bank of America Corp. are having second thoughts about further participation in GFANZ. The question is, can they afford it and their accountants and attorneys are increasingly answering, NO!
The banking giants "have said they feel blindsided by tougher UN climate criteria and are worried about the legal risks of participation."
One anonymous top executive at a big U.S. bank is quoted as saying, "I am close to taking us out of these global green commitments — I'm not going to allow third parties to create legal liabilities for us and our shareholders. It is immoral and irresponsible."
Colluding to block future banking with or investment in coal, oil, and gas companies, as was demanded this summer by the U.N.'s Race to Zero campaign that accredits pledges made by GFANZ, could expose the firms to anti-trust prosecution, among other potentially problematic types of legal exposure.
Nor is it just major U.S. banks that are concerned about increasing carbon dioxide reduction commitments and potential regulations to enforce them.
"European banks including Santander Bank NA have also expressed misgivings." In particular, European bank executives are concerned that forthcoming U.S. Securities and Exchange Commission rules around climate risk disclosures and commitments could result in lawsuits.
"A European bank executive said that 'there is no way we are joining any new ESG groups, we don't control them,'" one top European banker told the Financial Post.
Another fact bankers are considering is that banks in China, Russia, and India, three of the world's top carbon-emitting countries, are not party to GFANZ, a fact that both puts participating banks at a competitive disadvantage and undermines the effectiveness of carbon reduction commitments. Of the 116 banks that joined GFANZ's Net Zero Banking Alliance (NZBA), none is from China (33 percent of global carbon dioxide emissions) or India (nearly seven percent of global CO2 emissions), and only one is from Russia (accounting for about six percent of CO2 emissions). By contrast, tiny Liechtenstein, with emissions totaling less than a tenth of one percent of global emissions, counts three banks as members of NZBA. If Liechtenstein's banks' emissions go to zero — not net zero, but zero, meaning basically they ceased all operation — it would have no measurable impact on global CO2 emissions or climate change.
It should be noted that banks are also receiving substantial pushback from U.S. states that are increasingly cutting financial ties to institutions that boycott companies in the fossil fuel industries or adopt ESG policies attempting to direct investment away from coal, oil, and gas companies for political reasons, as opposed to financial performance.
It is good that the banks are waking up to the fact that the pursuit of net zero and ESG goals could put them at legal risk and negatively impact their financial performance. We at the Heartland Institute have reported on the economic harm net zero goals and ESG efforts would undoubtedly have on consumers, the general public, companies in particular industries, and the wider economy.
There is never a good time to adopt bad policies in the public or private sector, and net zero laws and regulations and ESG initiatives, whether pushed by woke government bureaucrats or financial elites running banks and investment houses, represent among the worst of bad policies — for the United States, the world, and companies and their investors.
H. Sterling Burnett, Ph.D. (firstname.lastname@example.org) is the director of the Arthur B. Robinson Center on Climate and Environmental Policy at The Heartland Institute, a nonpartisan, nonprofit research center headquartered in Arlington Heights, Illinois.